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Abstract

This paper explores how innovations in advertising technology reshape consumers' brand preferences -- the propensity to purchase certain brands over others despite similar prices -- and lead to changes in the market structure. Using a comprehensive barcode-level dataset on grocery products, I document that the average concentration and markup for the selected categories have decreased by about 10% and 5% respectively, between 2010 and 2016. Using an occurrence-level advertisement expenditure and impression dataset, I find that the cost elasticity of advertising steadily increases during the sample period, suggesting greater economies of scale for the entire advertising industry. Finally, I construct a multi-product, multi-sector heterogeneous firm model with endogenous advertising and entry/exit decisions, and structurally estimate model parameters. The counterfactual analysis shows that if the advertising cost function had not changed, the average markup and market concentration would have both increased between 2010 and 2016.

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